Middle class takes financial hit in most US cities this century

Middle class takes financial hit in most US cities this century

By Sam Fleming and Shawn Donnan in Washington May 11, 2016 10:00 pm

More than four-fifths of America’s metropolitan areas have seen household incomes decline this century, according to new research that exposes the politically charged reality of middle-class decline at the heart of this year’s presidential election.

The research on urban centres that are home to three-quarters of the US population shows that median household incomes, adjusted for the cost of living in the area, grew in just 39 out of 229 metro areas between 1999 and 2014.

The figures, prepared by the non-partisan Pew Research Center and shared with the Financial Times, cast light on the drivers of the economic discontent that have fuelled the rise of Donald Trump, the likely Republican nominee, and Bernie Sanders, the challenger to Democratic frontrunner Hillary Clinton.

Both men’s campaigns have tapped into deep-seated concerns among middle class voters on the right and the left. Pew’s research illuminates one source of that anxiety and raises questions about even some of America’s most celebrated economic success stories.

They reveal a steady erosion of the middle class across the map of America, with 203 out of the 229 metro areas experiencing a decline in the share of their populations that are middle income. At the same time, 172 metro areas saw increases in the share of their population that is upper-income, and 160 saw a rising lower-income share.

“We find the shrinking of the American middle class was a pervasive local phenomenon from 2000 to 2014,” said Rakesh Kochhar at Pew. “In that sense American communities share common ground — they are reflecting the national trend.”

US Middle Class

Middle-income Americans are defined by Pew as adults who earn two-thirds to double the national median, adjusted for household size.

The drivers of the middle-class squeeze vary from city to city, but some of the steepest income declines were seen in cities hit by industrial job losses in recent decades. Springfield, Ohio, saw incomes fall 27 per cent over the period, while the Detroit-Warren-Dearborn area of Michigan recorded an 18 per cent drop in incomes. Nationwide the number of manufacturing jobs shrank 29 per cent during the current century.

Oil towns in Texas and other states that experienced fracking booms saw some of the strongest growth in income — but those stories have suffered a major blow more recently with the commodity-price slide.

Even in cities celebrated for their economic reinvention as new centres of the so-called knowledge economy such as Raleigh, North Carolina, and Austin, Texas, the Pew research found median incomes falling and a shrinking middle class.

The area around Denver, Colorado, has attracted more than 600,000 new people since the turn of the century and almost 40 per cent of the population now wield university degrees. But adjusted for inflation the median income for a household of three fell from almost $83,500 in 1999 to just under $76,000 in 2014.

The US middle class has shrunk to just half the population for the first time in at least four decades, as the forces of technological change and globalisation drive a wedge between the winners and losers in a splintering US society.

The winners in terms of upward income mobility, measured by changes in the share of the population who were upper, middle and lower income, include oil cities such as Odessa and Midland, Texas, and the prosperous tourist destination of Barnstable Town, Massachusetts.

Pew found that many of the metro areas with relatively low median incomes — below $60,000 — were in the southern half of the US and California. The higher end of the income spectrum — where incomes were greater than $70,000, included areas on both coasts, including Seattle-Tacoma-Bellevue in Washington state and Boston-Cambridge-Newton, in Massachusetts.

The fortunes of Springfield, Ohio, reflect the impact of lost manufacturing jobs, a trend that was under way before the period studied. The area hosts a major truck assembly plant owned by Navistar that recently boosted its investment in the area, but the facility still employs thousands fewer workers than at its employment height, local officials say.

Today the biggest employers included a call-centre, said Springfield mayor Warren Copeland. “We have created as many jobs as we lost, but many of the jobs replacing those are ones that pay less,” he said. Springfield has been recovering since the recession, he added, but the task now is to attract better-paying jobs by retaining college graduates and boosting local education.

Copyright The Financial Times Limited 2016.


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